Final answer:
Insurable interest must be proven at the time of application to ensure that the policyholder has a legitimate stake in the property being insured and to prevent insurance fraud.
Step-by-step explanation:
The question is related to the concept of insurable interest in the context of insurance policies. Insurable interest must be proven at the time of application, meaning it is required to show that the policyholder has a significant interest in the property or life being insured, thus justifying the need for insurance coverage. In other words, the policyholder stands to suffer a financial loss if the insured event occurs; for instance, medical expenses are incurred, the policyholder dies, a car is damaged, stolen, or causes damage to others, and a dwelling is damaged or burglarized.
It is critical to understand that the fundamental law of insurance operates on the principle that the average person's payments into insurance over time must cover 1) the average person's claims, 2) the costs of running the company, and 3) leave room for the firm's profits. This ensures that the insurance company remains solvent and can pay out claims. Hence, confirming insurable interest is an essential part of this equation to prevent insurance fraud and ensure that the insured has a legitimate stake in the policy.